An Overview of Consumer Protections in the Mortgage Industry

What Are the Rules and Regulations in the Mortgage Industry?

As a Mortgage Loan Officer, it’s your job to help clients through one of the largest financial decisions of their lives. As an ethical professional, it’s also your responsibility to educate your clients on the nuances of mortgage as it applies to their specific needs. In this article, we’ll highlight the consumer protections you need to know to best serve your clients.

Mortgage Loan Officer Rules and Regulations

In the past, we’ve seen situations where unethical business practices led to significant changes in the mortgage industry. The most prominent example is the subprime lending crisis of 2008, which was caused by tremendously unethical mortgage lending operations.

When unethical behavior comes to light, legislators often step in to draft new rules and regulations to protect consumers, including but not limited to the following:

The Consumer Credit Protection Act of 1968

The Consumer Credit Protection Act (CCPA) was a piece of federal legislation passed by the U.S. Congress in 1968, and it provides protections for consumers from credit card companies, banks, and other lenders. This legislation created disclosure requirements to be followed by consumer lenders, as well as banning discrimination and misleading advertising practices.

Within the CCPA, you’ll find the Truth in Lending Act (TILA), which is a federal law that further protects consumers by improving transparency in the industry as well as allowing borrowers to look at multiple lenders to find the best mortgage rates and terms for their unique situation. Also, TILA requires lenders to disclose the term of the loan, APR, and any other fees associated with the loan with the consumer.

The Fair Housing Act

The Civil Rights Act of 1968, often referred to as the Fair Housing Act, was signed into law by President Lyndon B. Johnson in an effort to quell discrimination in the housing industry. This legislation had two main goals: to prevent discrimination and to reverse housing segregation.

In relation to mortgage lending, the Fair Housing Act states, “It is illegal discrimination to take any of the following actions based on race, color, religion, sex, disability, familial status, or national origin:

• Refuse to make a mortgage loan or provide other financial assistance for a dwelling

• Refuse to provide information regarding loans

• Impose different terms or conditions on a loan, such as different interest rates, points, or fees

• Discriminate in appraising a dwelling

• Condition the availability of a loan on a person’s response to harassment

• Refuse to purchase a loan”

The SAFE Act of 2008

The Secure and Fair Enforcement for Mortgage Licensing Act of 2008, often shortened to the SAFE Act, was enacted on 7/30/2008 by the U.S. Congress. It’s just one piece of the Housing and Economic Recovery Act of 2008 (HERA), the financial reform legislation created in response to the burst of the housing bubble and the resulting subprime mortgage crisis that affected U.S. real estate in the late aughts. The SAFE Act was the first piece of legislation that sought to regulate mortgage practices by requiring specific education to gain and maintain licensure as a mortgage professional. Regarding the SAFE Act’s overall goal, it states:

“The SAFE Act prohibits individuals from engaging in the business of a residential Mortgage Loan Originator without first obtaining and maintaining annually:

• For individuals who are employees of a covered financial institution, registrations as a registered Mortgage Loan Originator and a unique identifier (federal registration)

• For all other individuals, a state license and registration as a state-licensed Mortgage Loan Originator, and a unique identifier (state licensing/registration)”

It’s important to note that the titles “Mortgage Loan Officer” and “Mortgage Loan Originator” are often used interchangeably, including in the SAFE Act.

Although these regulations (and many others) have been put into place to protect consumers, it’s your responsibility as a mortgage professional to uphold and enforce these practices through your day-to-day work. While you don’t need to have these laws memorized in order to act as an ethical MLO, it certainly doesn’t hurt to brush up on them from time to time. Now you can serve your clients in a way that’s not only helpful but ethical, too!